ECB in wait-and-see mode at start of new year

The European Central Bank, which has cut interest rates the past two months, looks set to hold its fire on Thursday until it can better assess how effective the moves have been. Stock markets across Europe were treading water in anticipation of unchanged interest rates at both the ECB and the Bank of England and the euro was also little changed at $1.2716 in morning trade in London, compared with $1.2707 in New York late Wednesday. Last month -- on the same day that EU leaders met in Brussels in what was seen as a make-or-break crisis summit -- the ECB brought eurozone borrowing costs back down to their previous historical low of 1.0 percent, effectively reversing last year's two earlier rate hikes. On top of that, it offered banks in the region an unlimited amount of liquidity by loosening collateral rules, cutting the minimum reserve ratio and launching new three-year loans at super-cheap rates. With all that now feeding through into the system, it is unlikely to announce any new measures at its regular monthly meeting on Thursday as it waits to see how those moves pan out, analysts said. "We expect the ECB to leave (interest) rates unchanged at its monthly policy meeting on Thursday and also expect no further announcement of non-standard measures at this point," said Goldman Sachs economist Dirk Schumacher. "Before taking further measures, the ECB will likely want to have more clarity on how the macro picture is evolving and how successful the measures taken in December have been in stabilising the situation," he said. UniCredit's chief eurozone economist, Marco Valli, agreed. "After two exciting meetings in November and December, on Thursday the ECB is unlikely to announce any meaningful policy change," he said. Valli said he would not rule out a move completely but judged it unlikely, especially because some members of the ECB's rate-setting governing council voted against the last cut in December. Nevertheless, "while steady rates seem the most likely outcome, the ECB is set to retain a clear easing bias, reflected in the 'substantial downside risks' to the growth outlook," Valli said. The ECB's governing council will also need to take stock of a raft of conflicting data to gauge the strength of the eurozone economy. On Wednesday, figures showed that the German motor driving eurozone growth went into reverse in the last quarter of last year, likely contracting slightly, despite growing by 3.0 percent over the whole of 2011. The effects of the unprecedented liquidity measures also remain unclear at the start of the new year. Even though banks borrowed nearly half a trillion euros from the ECB last month via the three-year lending facility, so far they have been largely stashing it back at the ECB and not lending it out to business. In general, the ECB sees its role in the long-running debt crisis as limited, insisting it is up to national governments to find a long-lasting and sustainable solution to stabilise strained public finances. A controversial bond-buying programme launched under the previous head, Frenchman Jean-Claude Trichet, is only temporary, the current ECB chief Mario Draghi has insisted. Earlier this week, ratings agency Fitch urged the ECB to extend its bond purchasing programme to prevent a "cataclysmic" collapse of the euro. Commerzbank economist Thu Lan Nguyen said Draghi "will again not raise expectations of further bond purchases" at the post-meeting news conference Thursday. "Moreover, other far-reaching measures of monetary easing also seem unlikely, as many of the measures just decided at the last meeting have not even been implemented yet," the economist added.